Borrowing money can be intimidating, whether it is to purchase a home or using your first credit card. Defining your needs and finding the right solution can be a timely process but is worth the effort. Below are some tips on how to better understand your borrowing options.
Credit cards have become an everyday tool for people to make purchases and manage their personal finances. Access to credit enables families to purchase homes, deal with emergencies, obtain goods and services and build a credit history for larger purchases such as a car or home. Today, roughly 73 percent of all families have at least one credit card. About 60 percent of cardholders are “convenience users” – they avoid interest charges by paying balances in full each month.
DO know the power of credit. Banks look at your credit history as an indication of your future financial behavior. By using credit wisely, you can build a good credit history making it easier to get loans with low interest rates, rent an apartment, purchase a car or home, and may even help you get a job.
Borrowers have lots of choices among types of loans and lenders. Choosing wisely can save you a lot of money. Protect yourself from paying more for credit than you need to by understanding the different types of loans and lenders. Remember, if you borrow money that you cannot repay, you can lose your home, your car, your savings and your investments. Also, a court can order that your employer “garnish” your earnings, that is, withhold some of your pay on behalf of a creditor.
For some loans, called “secure loans,” you must put up “collateral” – something you own that the lender can take if you don’t repay the loan. Cars, homes and savings and investment accounts are common types of collateral. “Unsecured” loan, like credit cards, do not require collateral.
Buying a home may seem complicated, but it’s easy to find the help you need.
A bank or other mortgage lender will help you determine what size mortgage loan you can afford and what special programs are available to help you finance a home purchase.
A real estate agent can help you find a home you like and can afford.
A title company can organize the paperwork and make sure your loan “closes” (the transaction is completed) as scheduled.
A community group in your area may offer home ownership counseling programs to help you understand the details of the home buying process and the responsibilities of homeownership.
In most cases, you will contribute a “down payment” from your own funds and you will finance the rest of the purchase price with a mortgage loan. Depending on your income, assets like savings and investments, debts, employment and credit history, you may be eligible for special programs designed for first-time homebuyers by the government, the lender, a non-profit organization or a community group.
The “equity” in your home is the difference between the market value of your home and the balance you owe on your mortgage loan(s). Many lenders will loan you up to 85 percent of your equity, but your home is collateral, so if you fail to make payments on time, you can lose your home.
Whether your post high school education is vocational or academic training, the required years of study and can be very expensive. A college education can cost more than $100,000 at a private university. Among colleges and universities, government-sponsored schools, especially two-year community colleges, have the lowest costs. A vocational education, to prepare students for a particular trade such as electronics, cosmetology, medical assisting or bookkeeping, can require less than four years to complete but still cost as much as $20,000.